The dos, don'ts and what-ifs when choosing a credit card
, by Rob Kaufman
Ahhhhh... the sweet smell of plastic. Especially when it's a brand new credit card that's about to give you the freedom to buy what you want, when you want.
But be careful! Before choosing a credit card, make sure it will be working for you, not against you. Here are some DOs, DON'Ts and other things to consider when getting ready to make that decision.
Know your habits. Have a one-on-one with yourself and be as honest as possible. Will you pay the card's balance off in full each month or do you intend to carry a balance? If you plan on paying it off in full, the card's interest rate really isn't top priority. However, if you think you might carry a balance, it's best to choose a card with the lowest introductory and interest rates.
Know your intentions. Before you finish that discussion with yourself, try to figure out if this will be a credit card for just emergencies or if you'll be using it for most of your purchases. If it's the latter, you'll probably want to go with a card that offers a bountiful credit limit and strong rewards program.
Know your financial profile. Check your credit scores and reports so you know if the credit limit and interest rates the credit card company wants to charge you is on target. If your FICO® BankCard Scores are high and your credit reports are impressive, the credit card company should offer you a low interest rate and high credit limit.
Let APR fool you. The APR (annual percentage rate) can be fixed (stays the same) or variable (fluctuates with the prime rate, for example). But both fixed and variable rates can change based on your credit payment performance, reaching your credit limit or any other number of triggers. So beware of APR promises made by the credit card company.
Accept a low credit limit. There are a few reasons you want as high a credit limit as possible. First and foremost is your debt-to-credit ratio. The closer you are to reaching your card's credit limit, the higher your debt-to-credit ratio.
Skip the fine print. Credit card fees and penalties are often written in fine print that many people tend to skim through. This information typically includes fees for balance transfers and cash advances or even making payments by phone. Read the fine print to make sure you're paying reasonable fees and no interest for at least twelve months. And you shouldn't have to pay for rewards programs either - there are too many card issuers currently offering these programs at no cost.
You get a great offer in the mail? Offers sent by mail often appear to be flawless - on the surface. But always read the fine print and take a few minutes to go online and search for "complaints" and "reviews" about the card issuer. You never know what you'll find... or won't.
You're given a rate "range"? Not knowing the exact interest rate and credit limit at the start could be a problem down the line. If you have to, call the issuer and try to find someone who can narrow these amounts down for you. Better to be sure of your potential interest payments on day one then shocked and surprised many months down the line.
__I fall behind on payments? __ Here's another reason to get in touch with the issuer by phone. If you have problems paying the minimum monthly payment, will you lose your reward points, get hit with a late fee or a higher rate? How long before they send you to a collection agency? Will the issuer be kind and slash your interest for a month or two? One phone call can save you big headaches in the future.
The incentive program! These days, there's a reward program for just about every card out there, so you shouldn't have to pay extra for these rewards. Look for a program that offers the things that will benefit you . Would you enjoy discounted travel and hotel stays? Reimbursement for your groceries? A cash rebate that actually helps pay your credit card bill? The reward programs are endless. Just be sure you know the rules - like when and if the rewards expire and if there are limits to the number of points you can earn. As with the fees and penalties, get out your shovel and magnifying glass because these rules are probably buried deep and displayed in very small print.